Ruger Stock Study: Making Money out of Lemons

As someone who works with law enforcement for my day job, it’s getting hard to watch the news. Between Dallas and Baton Rouge and the overall distaste for law enforcement in general, it’s just too sad. The amazing thing is how they feel about all of the hate. I’ve asked a few of them, “How do you wake up every day, put on the badge, and go to work? Aren’t you scared?” They all answer the same way. Yeah, they’re scared, but now more than ever, they need to wear the badge. With all of the hate and violence, they feel the need to try and protect our communities with even more fervor. It baffled me to hear that over and over. It’s why I could never do their job.

As sad as I find all of these anti-LEO sentiments, I would be remiss to not at least identify potential movements in the stock market because of them. News media can drive stock movements in either direction (Want proof? Here’s how I made 32% on the Brexit). If you do some research on Google Trends you can see that as Obama prepared to take office, search topics related to guns started to increase. Coincidentally, the share price for Ruger ($RGR) and Smith & Wesson ($SWHC), along with their trading volume, increased drastically. Gun stocks, and other home-security type stocks benefitted greatly from the idea that Obama was “coming to take our guns!”

Currently, because of all the violence and shootings going on in the country, I’m contemplating buying some Ruger shares (or possibly some other gun stock) and would like to share my thoughts with my readers.

Ruger

Ruger is by far largest manufacturer of firearms in America. Perhaps because of that, they’ve enjoyed the largest percentage gain in price since Obama’s inauguration in January of 2009. Check it out, below is a 10-year graph of $RGR.

Ruger 10 Year Stock History

What you’re seeing there is over 700% growth! Ruger also began to pay dividends in May of ’09; something they had not done in over three years. Shareholders were seeing the green. As for what’s going on today, this is a 3-month view of Ruger shares:

Ruger 3 Month Stock History

As you can see, they’ve traded as high as $70.30 and as low as $57.25. It looks as if the stock faces some resistance at $68 to go higher. However, this last run may have shattered that. This was a fairly large and quick run from $60 to $68, I wouldn’t be surprised to see Ruger drop down a bit. If it can manage to get back down to the $64 range, I would be interested in buying.

Conversely, if it hasn’t topped out yet and manages to hit $70, I would look to buy a speculative put (that means I’m buying the right, but not the obligation to sell a stock at a specified price). I would try and get my sale price near $70. That way, if the stock does end up dropping down like I think it might, I could buy it at whatever price the current market is (let’s say $64) and then exercise my option. By exercising, I could then sell my stock at $70, even though the market is trading at $64. If I’m wrong though, and the stock never drops down, my option expires worthless and I’ve wasted money. The upside to that, is I only lose the premium I paid which might be around $300 as opposed to buying the stock and holding the risk of it dropping unexpectedly.

Those are the two plays I’m considering for Ruger. I considered Smith & Wesson; however, they’re in the middle of a large rally and I don’t want to bet that the rally is over. If I buy in now, and try to “beat the market”, I’ll probably lose and get stuck selling in the downturn in price. I could also try a speculative put here, but again, I’m not sure the rally has topped out. Thus, I’m relegated to the sidelines, watching and waiting for more clear signs that surge is over, and will soon start dropping.

The Takeaway

I don’t trade gun stocks a lot. Mainly because when they’re having a great year, it means some terrible things are going on in the real world. I trade stocks to have fun and make some money. Not to profit off of sadness. However, being in law enforcement, I can’t get away from these stories so I might as well make a few bucks.

Do you agree with my analysis? Which way do you think Ruger will go? Personally, I’m leaning towards the stock dropping down to my preferred price before raising again. Let me know what you think in the comments below! Also, don’t forget to like me on Facebook! Here’s the link! If you would prefer some more cost-saving discussion, check out my article on how I slashed my phone bill.

Disclaimer – Cash Flow Celt does not, at this time, own any of the stocks mentioned in this article. However, if market conditions are conducive, CFC may purchase interest in any of the companies aforementioned. This article is not intended to be marketing or investment advice. Please consult a licensed professional when discussing the purchase and sale of stocks in your portfolio.

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I'm just a local business and finance nerd looking to help people get educated about small business, marketing, and personal finance! I write about anything and everything that I can tie into those themes. I'm also Central Florida's only Kilted Realtor, so I write about Real Estate too! Check out my About Me page to see the origins of Cash Flow Celt.